Chapter Global Human Resource Management 18

McGraw-Hill/Irwin International Business, 5/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved Case: Molex World’s second largest manufacturer of electronic components 50 manufacturing plants, 21 countries HRM viewed as most localized of all the functions Hires experienced, educated foreign nationals in the US for foreign postings Moves people around the world In house management development programs

McGraw-Hill/Irwin International Business, 5/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved Human resource management (HRM) Refers to the activities an organization carries out to use its human resources effectively Four major tasks of HRM Staffing policy Management training and development Performance appraisal Compensation policy

McGraw-Hill/Irwin International Business, 5/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved International human resource management Strategic role: HRM policies should be congruent with the firm’s strategy and it’s formal and informal structure and controls Task complicated by profound differences between countries in labor markets, culture, legal and economic systems

McGraw-Hill/Irwin International Business, 5/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved Strategy, structure and control systems

McGraw-Hill/Irwin International Business, 5/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved Staffing policy Selecting individuals with requisite skills to do a particular job Tool for developing and promoting corporate culture Types of Staffing Policy Ethnocentric Polycentric Geocentric

McGraw-Hill/Irwin International Business, 5/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved Comparison of staffing approaches

McGraw-Hill/Irwin International Business, 5/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved Ethnocentric policy Key management positions filled by parent-country nationals Best suited to international businesses Advantages: Overcomes lack of qualified managers in host nation Unified culture Helps transfer core competencies Disadvantages: Produces resentment in host country Can lead to cultural myopia

McGraw-Hill/Irwin International Business, 5/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved Polycentric policy Host-country nationals manage subsidiaries Parent company nationals hold key headquarter positions Best suited to multi-domestic businesses Advantages: Alleviates cultural myopia. Inexpensive to implement Helps transfer core competencies Disadvantages: Limits opportunity to gain experience of host-country nationals outside their own country. Can create gap between home-and host-country operations

McGraw-Hill/Irwin International Business, 5/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved Geocentric policy Seek best people, regardless of nationality Best suited to Global and trans-national businesses Advantages: Enables the firm to make best use of its human resources Equips executives to work in a number of cultures Helps build strong unifying culture and informal management network Disadvantages: National immigration policies may limit implementation Expensive to implement due to training and relocation Compensation structure can be a problem.

McGraw-Hill/Irwin International Business, 5/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved The expatriate problem Expatriate: citizens of one country working in another Expatriate failure: premature return of the expatriate manager to his/her home country Cost of failure is high: estimate = 3X the expatriate’s annual salary plus the cost of relocation (impacted by currency exchange rates and assignment location) Inpatriates: expatriates who are citizens of a foreign country working in the home country of their multinational employer

McGraw-Hill/Irwin International Business, 5/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved Expatriate failure rates

McGraw-Hill/Irwin International Business, 5/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved Reasons for expatriate failure US multinationals Inability of spouse to adjust Manager’s inability to adjust Other family problems Manager’s personal or emotional immaturity Inability to cope with larger overseas responsibilities European multinationals Inability of spouse to adjust Japanese Firms Inability to cope with larger overseas responsibilities Difficulties with the new environment Personal or emotional problems Lack of technical competence Inability of spouse to adjust.

McGraw-Hill/Irwin International Business, 5/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved Expatriate selection Reduce expatriate failure rates by improving selection procedures An executive’s domestic performance does not (necessarily) equate his/her overseas performance potential Employees need to be selected not solely on technical expertise but also on cross-cultural fluency

McGraw-Hill/Irwin International Business, 5/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved Four attributes that predict success Self-Orientation Possessing high self-esteem, self-confidence and mental well-being Others-Orientation Ability to develop relationships with host-country nationals Willingness to communicate Perceptual Ability The ability to understand why people of other countries behave the way they do Being nonjudgmental and being flexible in management style Cultural Toughness Relationship between country of assignment and the expatriate’s adjustment to it

McGraw-Hill/Irwin International Business, 5/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved Training and management development Training: Obtaining skills for a particular foreign posting Cultural training : Seeks to foster an appreciation of the host-country’s culture Language training : Can improve expatriate’s effectiveness, aids in relating more easily to foreign culture and fosters a better firm image Practical training: Ease into day-to-day life of the host country

McGraw-Hill/Irwin International Business, 5/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved Training & management development continued Development: Broader concept involving developing manager’s skills over his or her career with the firm Several foreign postings over a number of years Attend management education programs at regular intervals

McGraw-Hill/Irwin International Business, 5/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved Repatriation of expatriates Didn’t know what position they hold upon return. Firm vague about return, role and career progression. Took lower level job. Leave firm within one year. Leave firm within three years percent

McGraw-Hill/Irwin International Business, 5/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved Management development & strategy Development programs designed to increase the overall skill levels of managers through: On going management education Rotation of managers through a number of jobs within the firm to give broad range of experiences Used as a strategic tool to build a strong unifying culture and informal management network Above techniques support transnational and global strategies

McGraw-Hill/Irwin International Business, 5/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved Performance appraisal Problems: Unintentional bias Host-nation biased by cultural frame of reference Home-country biased by distance and lack of experience working abroad Expatriate managers believe that headquarters unfairly evaluates and under appreciates them In a survey of personnel managers in U.S. multinationals, 56% stated foreign assignment either detrimental or immaterial to one’s career.

McGraw-Hill/Irwin International Business, 5/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved Guidelines for performance appraisal More weight should be given to onsite manager’s evaluation as they are able to recognize the soft variables Expatriate who worked in same location should assist home-office manager with evaluation If foreign on-site managers prepare an evaluation, home-office manager should be consulted before completion of formal the terminal evaluation

McGraw-Hill/Irwin International Business, 5/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved Compensation Two issues: Pay executives in different countries according to the standards in each country? or Equalize pay on a global basis? Method of payment

McGraw-Hill/Irwin International Business, 5/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved Compensation for four positions in 26 countries

McGraw-Hill/Irwin International Business, 5/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved National differences in compensation CEOHR DirectorAccountantMfg. Employee Argentina$860,704$326,874$63, 948$17, 884 Canada742,228188, 07044,86636,289 Germany421,622189,78561,37536,934 Taiwan179,486102,49130,65211,924 United Kingdom 719,665268,302107,83928,874 United States1,403,899306,18166,37744,680 Table 18.4 b

McGraw-Hill/Irwin International Business, 5/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved National differences in CEO pay for midsize companies Fig 18.1

McGraw-Hill/Irwin International Business, 5/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved Compensation issues Type of CompanyPayment Ethnocentric How much home-country expatriates should be paid. Polycentric Pay can and should be country-specific. Geocentric/Transnational May have to pay its international cadre of managers the same.

McGraw-Hill/Irwin International Business, 5/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved Expatriate pay Typically use balance sheet approach Equalizes purchasing power to maintain same standard of living across countries Provides financial incentives to offset qualitative differences between assignment locations.

McGraw-Hill/Irwin International Business, 5/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved Components of expatriate pay Base Salary Same range as a similar position in the home country Foreign service premium Extra pay for work outside country of origin Allowances Hardship, housing, cost-of-living and education allowances Taxation Firm pays expatriate’s income tax in the host country Benefits Level of medical and pension benefits identical overseas

McGraw-Hill/Irwin International Business, 5/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved The balance sheet Fig 18.2

McGraw-Hill/Irwin International Business, 5/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved International labor relations Key Issue Degree to which organized labor can limit the choices of an international business Aims to foster harmony and minimize conflicts between firms and organized labor

McGraw-Hill/Irwin International Business, 5/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved Concerns of organized labor Multinational can counter union bargaining power with threats to move production to another country Multinational will keep highly skilled tasks in its home country and farm out only low-skilled tasks to foreign plants Easy to switch locations if economic conditions warrant Bargaining power of organized labor is reduced Attempts to import employment practices and contractual agreements from multinationals home country

McGraw-Hill/Irwin International Business, 5/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved Strategy of organized labor Attempts to establish international labor organizations Lobby for national legislation to restrict multinationals Attempts to achieve international regulations on multinationals through such organizations as the United Nations